Beware three factors that lead to business failure

Article date: Sep 10 2013

John Hildebrand

It’s during challenging times like we’ve experienced over the last few years we see new blooms on the entrepreneurial tree. While it’s exciting to see new business dreams blossom, it’s sad to see dreams die.

In many cases, a business startup represents an individual or family cashing in of all or most of a retirement account or perhaps an inheritance or life savings. When folks step out in faith like this, they pour their hearts and souls into their projects. Unfortunately, the vast majority of them fail. About 50 percent to 80 percent of business startups fail in the first few years, and another large proportion fail in the first five years.

In most cases, failures are a result of one or more of three broad factors: lack of real business knowledge, lack of planning and lack of capital.

By lack of basic business knowledge, I mean many folks who start a new business do so because they’re really good at or have a passion for something. What they don’t have, however, is a real understanding of how to run a business. They compound the problem by trying to do everything themselves — even those things they really don’t know how to do. For example, some business owners sometimes pay tremendous payroll tax penalties as a result of not knowing what the rules are or thinking they can get around them.

Here’s what I consider a great rule of thumb: Spend your time doing what you’re an expert at and pay others to help you with the critical things you really don’t know how to do. You can’t be an expert in everything — so don’t try to be. Spend your time taking care of customers, training your staff and seeking out new business. You’ll discover you’ll make more money and probably get more sleep. Most outsourced help is much more efficient than you’ll ever be.

I used to try to fix my own cars, but it frequently cost me more than just taking the car to a mechanic. I’m smarter now. I just take my car to a professional in the first place and let them hassle with it. I work at what I’m an expert at and make more money in the end. The bottom line? If you’re not an expert, hire one.

My first question about lack of planning is this: Do you have a realistic business plan? You might be an expert plumber, but does that also mean you’re an expert accountant, advertising consultant and office manager? Consider getting professional help with developing a business plan. In Grand Junction, the Business Incubator Center offers assistance in helping entrepreneurs get through this process. Moreover, a lot of the services at the center are offered at no or reduced cost.

There’s an old saying: “Those who fail to plan are planning to fail.” Set yourself up for success. Get advice from people who don’t care if they hurt your feelings. Your friends or family might tell you what they think you want to hear and not the truth. Paying a consultant a few thousand dollars might sound like a lot of money, but it’s far cheaper than losing your retirement account or life savings to a poor decision.

As for lack of capital, some businesses can be started fairly inexpensively — especially those offering services or labor. Examples include that plumbing business or a residential cleaning firm. Most folks who want to start a service business already work in the field and many own their own tools. But they still need money for insurance, advertising and living expenses while they get their enterprises going.

One of the biggest mistakes new business owners make is thinking they can live on income from their ventures from the outset. In most cases, you’ll likely need one to three years of savings to make it through the startup phase.

Retail operations and restaurants require much more capital to launch. It’s not unusual to spend $250,000 to $500,000 in getting a small retail operation off the ground. That’s a great deal of money for most people, and there are no government bailouts for small businesses that fail.

You have to do your homework and have a very good handle on the real costs before you go and cash out your retirement. Once you spend it, it’s gone. Starting a business is a lot like remodeling your house. After you figure out your budget, double it to get closer to the real cost.

Know your industry, spend a lot of time in the planning stage, hire experts and make sure you have sufficient capital. Good luck and have fun. Entrepreneurship affords a great adventure.

John Hildebrand serves as president of business development for Autopaychecks at 441 Colorado Ave. in Grand Junction. Autopaychecks offers a range of payroll and human resource services and tools. Reach Autopaychecks at 245-4244 or visit the website located at www.autopaychecks.com.